Robeco's Principles on
Fund Governance
 Compliance
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Robeco's Principles on
Fund Governance
Compliance
Final
1 November 2016
Published
Principles of Fund Governance 2016_final.docx
Robeco's Principles on Fund Governance
Contents
1.
Introduction
4
2.
Fund Governance at Robeco
5
3.
3.1
3.2
3.3
Principles of fund governance
Principles
International Best Practices
The Principle of ‘Conscientious Consideration’
6
6
9
9
4.
Implementation and Enforcement of Fund Governance
10
5.
In conclusion
11
November 2016
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Robeco's Principles on Fund Governance
1.
Introduction
Robeco Institutional Asset Management B.V. (Robeco) manages on a professional basis assets entrusted
to it by third parties. Robeco assumes a fiduciary responsibility. Robeco’s motto is to Deliver Superior
Results Through Inspired Investing. Robeco has defined a set of core values including integrity, quality
orientation, client orientation, result orientation - defined as creating value for our clients - and
cooperation. These core values have been incorporated into Robeco’s Code of Conduct. Robeco delivers
on these principles through a sound fund governance. Where Robeco’s interests are in line with the
interests of third-party customers this involves running a professional organization with the necessary
checks and balances. When interests clash the issue becomes more sensitive and the principles of fund
governance come into play. The purpose of this document is to show how Robeco handles governance
issues. These often take the form of conflicts of interest between Robeco as fund manager and the
investors in the funds. The principles are minimum requirements for Robeco for the management of the
Dutch and Luxembourg funds.
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Robeco's Principles on Fund Governance
2.
Fund Governance at Robeco
Robeco is committed to operate its fund management activities in a fair and reasonable manner. This
means that paramount attention must be given to managing potential conflicts of interest. Should
conflicts of interest nevertheless occur, Robeco should deal with these situations in accordance with its
fiduciary duty to act in the best interest of the investor.
To accomplish this, Robeco has defined the set of principles given below for specific situations commonly
defined as conflicts of interest. When dealing with potential conflict of interest situations, Robeco will
primarily endeavor to reasonably and fairly apply the specific principles defined herein. In situations that
may not be covered by these principles, Robeco will in general seek to apply international best practices
to the extent available. Robeco pledges to resolve any such situation, having due regard for the interests
of the investor and Robeco’s fiduciary duty, after reasonable and fair consideration of all the relevant
facts and circumstances. We call this process ‘conscientious consideration’.
It is supported by a structure in which the Executive Committee of Robeco bears ultimate responsibility
for compliance with the principles. Compliance carries out periodic reviews on the application of fund
governance principles in the business operations. Another part of Robeco’s fund-governance mechanism
is formed by regular fund-principle audits within Robeco’s business operations. These audits are carried
out by Internal Audit. The Supervisory Board of Robeco fulfils the role of oversight entity with regard to
fund governance. It has the task to check whether the management company fulfils its duty to act in the
interest of the investors in its funds and complies with the law and these principles.
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Robeco's Principles on Fund Governance
3.
Principles of fund governance
3.1
Principles
Managing conflict of interests
Paramount attention is given to manage potential conflicts of interest. Measures are embedded in the
organization to avoid conflict of interest. An outline of the conflict of interest policy, which describes the
main areas of potential conflict of interests, is published on the website. Should conflicts of interest
nevertheless occur, Robeco deals with these situations in accordance with its fiduciary duty to act in the
best interest of the investors.
Product Quality
Robeco is firmly committed to develop quality products designed to provide added value for investors.
The timely consultation of all relevant parties involved in the fund-structuring process improves such
quality and reduces reputational risk. All product proposals are therefore reviewed by the Product
Approval Committee (PAC), which focuses on product quality and the identification and proper
addressing of conflicts of interest. The PAC consists of Robeco’s Executive Committee and the heads of
Compliance, Risk Management and Product Management.
Asset Valuation
The valuation of portfolios managed by Robeco is based on the principle of fair value, taking into
consideration applicable legal requirements and the guidelines described in the prospectus of the
respective fund. Robeco ensures that valuation of assets and calculation of Net Asset Values (NAV) are
performed independently from the portfolio management function.
Fund Unit Trading
Robeco has procedures to prevent late trading in units of its funds, i. e. it normally does not accept
orders of clients after the determined cut-off time. In order to protect the fund from the potential
negative impact of market timing transactions, Robeco has taken several measures, such as calculating
NAV after the cut-off time (forward pricing).
Transparency
Robeco strives for an open relationship with the investors by providing relevant, clear and
understandable information. This includes information on investment policy, investments, risks, costs and
management fees, affiliated parties and outsourcing. Robeco observes the applicable laws and
regulations as a minimum requirement. Examples are:
 The characteristics of a fund are clear, the risks are explained and there are no ambiguous
conditions;
 All fees charged by Robeco and their connection to services rendered are clear;
 The maximum subscription and minimum redemption prices in relation to the NAV are clear;
and;
 All performance-related information is aligned with Global Investment Performance Standards
(GIPS) guidelines.
Change in the conditions of a Fund
During the lifetime of an investor’s investment a fund’s conditions may change. In that case Robeco will
suitably inform the investors in good time in accordance with the applicable laws, regulations and the
fund’s conditions. Robeco strives to ensure that such information is easily accessible, clear and
understandable for all investors. If the proposed changes have a negative impact on conditions for the
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Robeco's Principles on Fund Governance
investor (e.g. a rise in fees), or if changes in the investment policy of a fund are proposed, the investor in
an open-ended fund shall always have the right to divest on the then prevailing conditions within a
reasonable period before the proposed changes are effected.
Unforeseen Costs during the Lifetime of a Fund
A fund may be confronted with unforeseen, extraordinary costs and expenses. These may be caused by
changes in tax treatment, increased regulatory costs, administration and custody fees, or by unusual
circumstances such as nationalization, a moratorium, market disruption or other irregular market
circumstances.
If the costs are the result of circumstances outside Robeco’s control, or if the costs are made in the best
interest of the investors, such costs are in general borne by the fund, if legally allowed. In all other cases,
Robeco shall bear these costs or may elect to propose to change the conditions such that these costs shall
then be borne by the fund (see ‘Change in the conditions of a fund’ above).
Services from Affiliated Parties
Robeco funds could make use of services from inter-group companies or other affiliated parties. These
services will be executed on arm’s length basis and will be disclosed properly.
Best Execution
In implementing and executing investment decisions, Robeco shall as a general rule take reasonable
steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution
and settlement, size, nature or any other relevant consideration. In particular, transactions with
members of ORIX Corporation will be executed on arm’s length terms customary in the market.
Fair Allocation
Robeco may generally execute transactions on an aggregated basis to obtain more favorable commission
rates or other transaction costs than if such orders are placed individually. When aggregating orders, all
portfolios shall be treated fairly and systematically. Robeco adapted a similar policy for IPO allocations.
Broker services
Robeco will ensure that the selection of counterparties for trade execution (brokers) will take place
according to defined procedures and criteria, taking into account execution capability and - where
applicable - quality of investment research (“Research”). In addition to an execution only fee (excluding a
fee for Research), brokers may charge a transaction fee consisting of two elements: a fee for the
execution of an order and a fee for Research. A fee for Research is only paid if such Research is directly
instrumental for improving the investment decision-making process within Robeco. Research can be paid
for through commission sharing arrangements (“CSA”) or through full service fees. In a CSA the cost of
Research is split from the execution costs. Subsequently, the fee for Research will become a credit of
Robeco at its broker account. Robeco transfers this credit to a research house or broker who provides
Research without executing any trades for Robeco. This way, the broker who, in the opinion of Robeco,
provides the best investment research will be paid. By splitting the execution and the investment research
it is accomplished that in both areas the best brokers can be selected.
Securities Lending
Robeco is transparent in a fund’s prospectus and annual report with regard to the possibility of lending
the portfolio securities of such a fund. The risk/reward relationship of lending activities for the fund shall
in essence be reasonable and fair and in line with market practice. Robeco will act in accordance with
best practices from the ICGN Guidance on Securities Lending from the International Corporate
Governance Network.
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Robeco's Principles on Fund Governance
Personal Interest and Remuneration
Robeco endeavors to structure its remuneration systems in line with market practices and in such a way
that conflicts with investors’ interests are avoided. Where potential conflicts are conceivable, monitoring
measures will be implemented in order to ensure that these conflicts are properly managed and
addressed. We consider the fact that employees, members of the Executive Committee and members of
the Supervisory Board can participate in Robeco’s funds as a ‘stake of confidence’. Private investment
transactions of employees, members of the Executive Committee and members of the Supervisory Board
are monitored. This is to ensure that we can steer clear of appearing to act with inside information.
Costs and Damages as a Result of Operational Errors
Robeco’s ambition is to deliver services to its clients through faultless processing. Nevertheless, in a
human environment operational errors can never be entirely excluded.
Therefore, Robeco carries adequate insurance coverage for damages and costs incurred by the fund due
to operational errors. Robeco’s liability will be limited to the insurance coverage, except for gross
negligence and/or willful misconduct.
Damages caused by errors in the calculation of the net asset value of a fund (NAV errors) and exceeding a
certain tolerance threshold shall be compensated by the fund, taking into account a de minimis amount.
Or if applicable the amount will be compensated by the management company to the fund.
Voting Rights
Robeco, in its function as investor, acts as an engaged shareholder and therefore makes use of the
relevant voting rights. Robeco votes for all investment funds for which the costs of voting are not
expected to have a noticeable, negative influence on the investment results. With respect to securities
lending it is Robeco’s practice that the lent shares are recalled in exceptional circumstances. These refer
to enabling Robeco to vote on significant items or when there is an indication of potential voting abuse
(empty voting by lender). The voting policy and the votes cast per investment fund can be found on
www.robeco.com.
General Meetings of the Funds
Robeco will endeavour that beneficial owners of shares or participants in its investment funds can
participate and vote in the general meetings of the funds. Robeco will suitably inform the investors of the
time and location as well as the agenda of such meetings in accordance with the applicable laws,
regulations and the fund’s terms and conditions.
Robeco will endeavour that – when the funds are offered and administered through a so-called
‘effectengiro’ – the beneficial owners of shares or participations in Robeco funds will be granted voting
rights in the general meetings of the funds.
Robeco’s offered ‘effectengiro’ – representing only the legal ownership of the shares or participations in
the funds – will abstain from exercising its voting rights.
Public Communications
It is Robeco’s conviction that all public communications in respect of its funds must give true, accurate
and complete information on the character, the costs, the risks and, if included, the past or simulated
performance of such product to the extent reasonably practicable. Information in advertisements for
Robeco products will be balanced in the presentation of sound commercial information and the technical
facts and risks necessary for potential investors on which they can base their judgment. Robeco is
transparent in its commercial information. Application of and compliance with applicable legal and
regulatory standards shall serve as a minimum requirement.
Market Abuse
Robeco has installed ‘Chinese Walls’ in order to manage the flow of price-sensitive information and other
confidential market information. Since Robeco is part of ORIX Corporation, there is an organizational,
physical and personnel segregation up to the highest possible level between Robeco and the other parts
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Robeco's Principles on Fund Governance
of the ORIX Corporation. Furthermore, there is an organizational and personnel segregation between the
Robeco business lines to the extent that this is reasonably necessary relative to their activities. This means
that employees report hierarchically only to their managers and appropriate information-sharing barriers
are in place to prevent dissemination of sensitive market information. No price-sensitive or confidential
market information is exchanged between business lines other than is required to effectively carry out
their work.
3.2
International Best Practices
In specific conflict situations where the above principles would not provide clear guidance Robeco
endeavors to apply international best practices to the extent available. This means that Robeco may
apply those standards that are commonly applied by peers in comparable situations and comparable
markets or those standards which are endorsed by organizations of market practitioners and which are
widely accepted and applied in the market.
3.3
The Principle of ‘Conscientious Consideration’
However well-defined and refined, a system of specific principles, even while supplemented with a set of
international best practices, cannot always guarantee sufficient external guidance to deal with specific
conflict situations. A fund management organization should independently reach a solution which does
justice to its fiduciary role and responsibilities. Robeco therefore pledges that it shall, in all cases,
endeavor to resolve any governance issues having due regard for the interests of the investor and
Robeco’s fiduciary duty, and after reasonable and fair consideration of all relevant facts and
circumstances. This process, which we call ‘conscientious consideration’ shall be conducted at the level of
the Executive Committee.
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Robeco's Principles on Fund Governance
4.
Implementation and Enforcement of Fund Governance
The above mechanism of principles, international best practices and conscientious consideration are
implemented within the Robeco organization in the following manner:
1.
Robeco has identified the main areas for conflicts of interest between the management
organization on the one hand and the investors in the funds on the other hand. All employees
have the individual responsibility to address these conflicts and to adhere to mitigating
principles and procedures.
2.
Standards and policies give substance to the fund principles. Robeco Compliance monitors, as
part of its annual compliance monitoring program, compliance with these standards and
policies. Compliance officers take part in management company meetings. Issues of fund
principles are addressed and discussed in these meetings. Compliance reports to the Executive
Committee and Supervisory Board at least once a year on the monitoring activities performed
to ascertain the application of the fund principles.
3.
Internal Audit periodically audits adherence to fund principles. Every principle shall be audited at
least once every three years. Internal Audit reports its findings to Robeco’s Executive Committee
and Supervisory Board.
4.
In the day-to-day management the organization will encounter situations that are not covered
by the above principles or that require the principles to be updated. Such situations shall be
presented to the Executive Committee of Robeco. The Executive Committee shall resolve these
points by applying the concept of ‘conscientious consideration’. This may lead to an
amendment of the principles. The Supervisory Board shall be kept informed about the outcome
of these discussions. The director(s) of the fund or the fund-management organization can
submit any subject for ‘conscientious consideration’ or report any issues to the Supervisory
Board.
5.
The Executive Committee of Robeco bears ultimate responsibility for compliance with these
principles. The annual report of the funds shall contain a paragraph specifically devoted to this
subject and shall contain in addition to the legal requirements of the relevant regulator, a
statement on compliance with these principles of fund governance.
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Robeco's Principles on Fund Governance
5.
In conclusion
The mechanisms provided for herein are a living instrument offering standards and good practices. To
stay abreast of constantly changing circumstances in the financial environment, Robeco will closely follow
developments in fund governance, identifying trends and seeking remedies to new challenges.
Robeco is aware that trust and integrity play an important role in the financial industry. It is Robeco’s
sincere intention that these principles of fund governance, together with the Code of Conduct and further
internal policies and standards will help to maintain a culture in which professional and ethical behavior
of the staff of Robeco is recognized, valued and promoted.
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